The HDFC Bank scrip fell as much as 1.5% in Friday’s trade after global index provider MSCI dropped the private lender from its global standard benchmark index representing India (MSCI India).
Reliance Power, JP Associates and Reliance Capital were the other three exclusions even as the latter were added to the MSCI India small-cap index. While these stocks also lost up to 3.5% of their value intra-day, they closed at R75.05 (down 2.1%), R33 (up 0.5%) and R467.95 (down 3%), respectively.
Experts say while investor interest in HDFC Bank may be hit by the exclusion, the stock may not correct substantially due to the prevalent market optimism.
“ETFs funds who benchmark their portfolios to the MSCI index may have to make a relevant adjustment. However, given the positive sentiment in the market, the stock may see sideways movement to small correction,” said Amar Ambani, head of research with IIFL.
After opening in the red, HDFC Bank fell to an intra-day low of R894 and closed at R899, down Rs 13.75, or 1.5%. Even after yielding 35% in 2014 so far, HDFC Bank’s returns are below that of its counterparts like ICICI Bank (53.4%) and SBI (55.3%).
Earlier on Monday, Kotak Institutional Equities, in a strategy note, highlighted the possibility of HDFC Bank’s exclusion in the impending ETF re-balancing, given that it is an FII-restricted stock. The brokerage had estimated an incremental supply of HDFC Bank shares worth $172 million from both India and emerging-market-focussed funds. HDFC Bank has approached the Foreign Investment Promotion Board (FIPB) for increasing the foreign holding limit to 67.55% from the current 49%. If the proposal is accepted, it would exceed the cap of 74%, after taking into account the stake of parent HDFC.
The Department of Economic Affairs and Department of Industrial Policy & Promotion are of view that promoter HDFC’s 22.56% ownership in HDFC Bank is foreign investment. As of the quarter ended September 2014, FIIs held 33.84% in HDFC Bank and another 16.38% through depository receipts.
Meanwhile, Motherson Sumi and Zee saw increased buying interest following their inclusion in the ia index. The stocks rallied 3.2% and 5.4%, respectively, before trading at moderate gains of 0.5% and 5% at R428.20 and R372.45. MSCI made 44 inclusions in benchmark India small-cap index.These included Bluestar, City Union Bank, JK Lakshmi Cement and Sterlite Technologies. It dropped eight stocks, including, Lanco Infratech, Radico Khaitan, Anant Raj and Kailash Auto Finance. These changes will be effective from November 25.